I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

Is Google Avoiding Or Evading Taxes In The UK?

There seems to be some confusion over whether Google is dodging, avoiding or evading corporate taxation in the UK. The first answer is the most obvious: it’s not evading taxes because that is illegal, by definition. Thus we would expect to see prosecutions if it were evading tax. We’re not seeing prosecutions so we might conclude, fairly, that there is no evasion going on.

However, the accusation is more that Google is avoiding taxes. Entirely legally, but rather against the spirit of the tax law. One making such a claim is my former colleague here at Forbes, Richard J Murphy:

That’s my benchmark for comparison. The anticipated tax rate on this would be 26.5%. That would give rise to taxes due of £224 million. And instead it paid £6 million if the report is right. Which is £218 million gone astray needing to be accounted for.

There is an error in this calculation. Explained by another Brit accountant, Christie Malry:

Google UK Limited isn’t the company that sells advertising. That company is Google Ireland Limited, which buys certain marketing support from Google UK. Google Ireland Limited also files its own accounts, in Ireland. It trades in the UK as a branch of the Irish company. And branch profits of foreign companies are taxable in the UK. The accounts don’t contain enough information to allow us to determine what the profit in the UK might be, but we would expect a share to be taxable here.

That is, the amount of tax paid by Google UK is not the total amount of tax paid by Google in the UK.

Now, which of these two distinguished gentlemen is correct is beyond my detailed knowledge of the tax system. However, it is possible to point out that even if that £6 million figure is correct, that £218 million has not been paid, then this still does not mean that Google is avoiding tax.

That’s nonsense: as I have shown repeatedly (and I started the world-wide stories on Google’s tax back in 2009 working with the Sunday Times) Google does not pay tax because Google is structured not to pay UK tax.

That’s a choice, and it’s the wrong choice. It’s the choice of a company that has decided to work round the law and not comply with it, not just in the UK, but around the world.

Murphy has been adamant over the years about what constitutes tax avoidance and how it differs from tax compliance. Tax avoidance is doing what is legal but not what was meant by those who crafted the laws. Compliance means using all of the allowances, even all of the tricks of corporate structures and so on, if and only if they are being used as the crafters of the laws intended.

Thus, as an obvious example, taking a tax credit on a payment into your pension is tax compliance as that’s what the aim and point of having a tax credit for pension contributions is: to encourage you to fund your pension.

Which brings us to corporate structure within the European Union. It is a definite policy of the EU that companies should treat the Single Market as, well, as a single market. That they should operate as if all of the 27 different legal and tax jurisdictions are in fact one economic space. Thus Amazon or Apple selling online goods through Luxembourg is not tax avoidance: this is tax compliance. The EU specifically and deliberately would like companies to have one company which sells across the EU.

Yes indeed, there are tax advantages for the companies in doing this, this is absolutely true. But they are not negating or getting around the wishes of the rule setters in doing this. They are doing exactly what it is hoped that they will do: treat the Single Market as the single economic space that it is meant to be. Google happens to use Ireland to sell its advertising across the EU. This is not tax avoidance, whatever the tax advantages it brings. For treating the EU as a single market is precisely and exactly what the lawmakers at EU level would like the company to be doing.

So a company which does this, has one legal entity which sells across the EU, is not tax avoiding at all: as it is doing precisely what those who crafted the laws intended they should do it is simply practicing tax compliance. Yes, even if £218 million of tax seems not to have been paid.

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